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New Rules for Gas: Good Policy, Delayed

April 24, 2012

Last week, EPA announced New Source Performance Standards (NSPS) for the oil and natural gas industry. These new rules are an important and long-awaited step towards better control of the air pollution emitted by this rapidly expanding sector.

Notably, the standards include the first federal air pollution regulations for hydraulically fractured (fracked) natural gas wells. That, plus new regulation of other equipment in this industry, represents significant progress in combating air pollution, especially as forecasts project increasing reliance on natural gas for generating electricity. Without these rules, air pollution from new gas wells and equipment would continue to increase; now the industry must begin to clean up nationwide. Once the rule finally goes into full effect, VOC emissions, a precursor of ground-level smog, will be reduced by hundreds of thousands of tons per year; toxic chemicals like benzene will be reduced by 12,000 – 20,000 tons per year. And, as a co-benefit of the pollution control measures needed to achieve the new standards, emissions of methane will be reduced by 1.0 – 1.7 million tons a year. This rule therefore eventually will provide significant air quality and climate benefits.

The bad news is that the rule has some substantial gaps. The worst gap is a two and a half year delay of the requirement to “green-complete” fracked wells – a process that prevents emission of pollutants into the atmosphere. EPA found that green completion is the best system of emissions reduction for these wells – but that it can’t be required until January 2015. This is dismaying because it is unnecessary. The technology for green completions consists of a set of tanks and traps, mounted on trucks, which use gravity to separate the natural gas from fracking fluids and solids. If it sounds simple, that’s because it is. It’s also cheap. Owners of over 1,600 wells have reported costs equaling less than $20,000 per well. That’s before accounting for the revenue generated by selling the natural gas that this technology captures. In fact, green completion actually makes money for natural gas producers. Even with gas prices very low right now, the required equipment rapidly pays for itself, and using it prevents vast amounts of pollution. Green completions are cheap and easy and in several states they’re already required.

So why wait until 2015? Well, the industry made many arguments to delay, and even to eliminate, the green completion requirement. However, CATF and others have demonstrated these arguments are without merit. For example, last fall the American Petroleum Institute (API) – an industry advocacy group – told EPA that only 200 sets of the equipment needed for green completions can be fabricated per year. Did we mention that this is fairly simple equipment? The petroleum industry has deployed vast amounts of equipment in shale gas basins over the past few years – for example, drilling thousands of wells and installing almost a hundred compressor stations in one year in a single state – Pennsylvania. The notion that this industry cannot fabricate more than a few hundred sets of tanks and traps a year is just not credible.

As even API acknowledges, 300 sets of completion equipment exist today. Using their recent figure for the number of wells which require fracking – 25,000 wells a year (up from 20,000 wells per year in their November comments) only 700 more sets of completion equipment are needed, since a single set can be used on 25 wells per year. EPA’s final estimate is that almost 13,000 gas wells are fracked a year, so by that figure, only 220 new sets are needed. Either way, a one-year delay would have been very sufficient for the gas industry to obtain the required equipment, which pays for itself, and enables the capture of serious air pollution. This industry does not lack for financial resources. As such, it is CATF’s position that the 2.5-year delay is simply not justified on the facts.

Now, EPA did not leave fracked wells entirely unregulated during the delay period – and that is a good thing, as vented wells are astoundingly dirty. In the interim, EPA has required the gas producers to flare, or burn off, the waste natural gas at fracked wells. But the final rule fails to impose any limits or requirements on the practice to ensure that flares burn cleanly to reduce emissions. To be sure, flares will eliminate a lot of methane emissions and reduce certain VOCs. But it will replace those emissions with carbon dioxide, smoke and other deadly particulates, NOx, and other unhealthful air pollutants. Clearly, flaring does not eliminate the air pollution problems experienced by people living nearby who already suffer from the impacts of drilling. It is not adequate, much less state of the art pollution control, as EPA recognized when basing the standard on the use of green completion techniques.

What’s more, EPA also determined that other sources in the industry, like conventional gas wells, oil wells, and existing natural gas equipment, will remain unregulated. For example, EPA has given the whole transmission and storage segment of the natural gas industry a hall pass. These are the interstate pipelines that move natural gas around the country. Again, this weakening from the proposed rule responded to industry arguments – they claimed that air pollution from pipelines and storage facilities is too diluted (with methane!) to be regulated. The additional reductions in VOC and methane that would have resulted from regulating that part of the industry would have come at only modest costs. It is unfortunate that natural gas transmission and storage, which emits over 2 million tons of methane and 65,000 tons of VOC a year, will not be covered at all under these rules.

We’ll probably be hearing a lot about the costs of this rule. The costs of the rule are very low – in many cases, like green completions, the required measures conserve gas for sale which can offset the cost of the measure completely or in part. Nevertheless, industry has claimed very high costs – based on incorrect arguments. For example, API has used the wildly inflated figure of $180,000 per green completion, which they got by arguing that each set of equipment would need to be rented for 30 days per well. But no producer has ever reported actual costs even approaching that number. Moreover, API’s estimate is based on the unreasonable idea that equipment must be separately rented for at least 30 days for each separate well, despite the fact that gas producers are drilling multiple wells on single pads that all can be completed one after the other. Well completion takes about a week, so there is no need to rent equipment for 30 days per well. API’s figure is based on that flawed assumption (and others) and is too high.

In short, EPA’s new oil and gas rule is a big improvement over the status quo but is weaker than current technology and economics allow. We will be working to defend the standards against further attacks (rhetorical and otherwise) based on the inconsistent and inaccurate claims that we have seen already. CATF also intends to continue working with EPA, states, industry partners, and our NGO partners to achieve further emissions reductions from the oil and gas industry. Few other sources of air and climate pollution can be cleaned up as rapidly and cheaply as this one, and that’s where our focus will remain.

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